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When is it Worth Refinancing?

[Music]

charlie is on the line charlie's in

orlando hi charlie welcome to the dave

ramsey show

uh good afternoon dave and rachel how

are you doing great how can we help

um i'm looking at refinancing hopefully

refinance our home

our mortgage we have a we have currently

have a 15-year mortgage

uh the balance is 268 000

uh at a 4.5 percent

yeah a monthly payment uh p i p and i

is about two thousand we do have a

escrow fund so our

uh total monthly mortgage payment is uh

two thousand eight hundred eighty eight

dollars uh

we can refinance down to a two-point

round of 2.7

and um but we'd have to increase

um our balance up to about 284 thousand

for the closing costs and uh extra uh

escrow money that they collect you gonna

stay in the house

yeah we're looking to stay in it uh we

just bought it it's a kind of our dream

home

they're saying the closing costs are

fourteen thousand dollars

well closing costs about 67 but they're

wanting to collect an extra

an extra seven for uh for escrow

oh well that's not it that's not lost

money though that's not a cost

and you'll get your escrow back you've

got an escrow account now that you'll

get back that'll offset that

yeah so basically you're talking about

from 4.5 to 2.7 so if you

round that say 2 savings a year right

yes 1 on 268 is 2680

two percent will be five thousand

dollars plus right

okay per year in interest saved and so

if your closing costs are seven thousand

dollars after a year and a half you've

made your money back

are you going to pay this off or sell it

within two years

no okay then you're going to make your

money back and you'll be in the in the

in the black on it right you see what

i'm doing

yeah definitely payment change doesn't

matter

the escrow doesn't matter because you

don't lose that money that money still

retains your position it's the cost of

the refinance

versus the interest saved

on the loan and your interest saved on

the loan is approximately two percent

per year

so around five thousand dollars a year

on 268 thousand dollars you're going to

save

in interest and

if it's costing you seven thousand

dollars to do that

that means after year one you've

recouped almost all of the seven

thousand with a five thousand dollar

savings

now the payment mayor the cash flow and

the payment mayor may not reflect that

because sometimes people move from a 30

to a 15 they take a higher payment too

but the payment all of that payment

difference is all going to principle so

that doesn't matter either

the the so the analysis the break-even

analysis on it

is interest saved divided into

cost closing costs and do you recoup it

fast enough

that it that it looks like fun and i can

tell you this looks like fun

yeah because we save five grand each

year as it goes on yeah

and of course the faster you pay it off

if you're gonna pay off the mortgage in

three years

for some reason or another you wouldn't

fool with it yeah yeah cause you know

you might say four or five thousand

dollars net

out of all out of all this stuff flying

around everywhere and all this trouble

and i wouldn't screw with it if that was

the case but or if you're thinking about

moving in the next two years i wouldn't

do it

but where you can recoup it all in less

than two years

and you probably have a seven to a ten

year window to pay this off

you're gonna be saving five grand all of

those years after that recoup then yeah

you do this refinance it makes a lot of

sense

good question man we appreciate you

joining us refinances are really hot

right now i was about to staff like we

get questions like that all the time

yep they're there it's a real estate

market's booming

in the middle of this pandemic it's

booming

you can't i mean i know four people put

houses on the market last week and

all of them sold in two days yeah and

that's in the nashville area but i mean

there's areas where it's not there's

more draconian shutdown stuff going on

in some of these areas that some of you

are in but

areas like tennessee that are open it is

booming

it's a freaking boom town part of it is

a bunch of you are leaving those states

where they're not letting you do

anything and you're coming here

which we love having you that's great

thank you for joining us here

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